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Lifestyle Behaviors and Wealth-Health Gaps in Germany

Author

Listed:
  • Lukas Mahler
  • Minchul Yum

Abstract

We document significant gaps in wealth across health status over the life cycle in Germany—a country with a universal healthcare system and negligible out-of-pocket medical expenses. To investigate the underlying sources of the empirical patterns in wealth-health gaps, we build a heterogeneous-agent life-cycle model in which health and wealth evolve endogenously. In the model, agents exert efforts to lead a healthy lifestyle, which helps maintain good health status in the future. Effort choices, or lifestyle behaviors, are subject to adjustment costs to capture various aspects of micro-level effort adjustment behaviors in the data. We find that our calibrated model generates around half of the wealth gaps by health observed in the German micro data, and that variations in health-related lifetime outcomes are largely explained by uncertainty realizations over the life cycle, rather than initial conditions at age 25. Our counterfactual experiments indicate that variations in individual health efforts account for over half of the model-generated wealth gaps by health status. Their importance is due not only to the fact that they affect labor income and savings rates, both of which influence wealth accumulation, but also because they act as an amplification device since richer households exert relatively more efforts to maintain a healthy lifestyle.

Suggested Citation

  • Lukas Mahler & Minchul Yum, 2022. "Lifestyle Behaviors and Wealth-Health Gaps in Germany," CRC TR 224 Discussion Paper Series crctr224_2022_338, University of Bonn and University of Mannheim, Germany.
  • Handle: RePEc:bon:boncrc:crctr224_2022_338
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    File URL: https://www.crctr224.de/research/discussion-papers/archive/dp338
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    Cited by:

    1. Chaoran Chen & Zhigang Feng & Jiaying Gu, 2022. "Health, Health Insurance, and Inequality," Working Papers tecipa-730, University of Toronto, Department of Economics.

    More about this item

    Keywords

    Health Inequality; Wealth Inequality; Healthy Lifestyle; Germany;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • D3 - Microeconomics - - Distribution
    • I1 - Health, Education, and Welfare - - Health

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